Tag: appraisal

Fannie Mae Easing their Standards

LOAN NOT APPROVED! This is the last thing a potential buyer wants to hear from a bank when trying to purchase a home, but now with Fannie Mae easing the financial standards of the debt to income (DTI) ratio. The DTI will be raised from 45% to 50% on July 29. What determines your DTI ratio? DTI is a ratio that compares your gross monthly income to your monthly payment on all of debt accounts. Included in this is your monthly credit card bills, auto loan payment, student loan payments, etc., and the monthly projected payments on the new mortgage. A $6,000 household monthly income and $2,500 in monthly debt payments, your DTI is 42 percent. Lenders use this ratio to evaluate your current debt load and to see how much you can responsibly afford to borrow. Less debt equals more borrowing power.  If you are loaded down with monthly debts, you’re at a higher risk of falling behind on your mortgage payments…this is not rocket science.

Researching data that spanned nearly 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have decent credit and are unlikely to default on their home loans. Significant enough to raise the ceiling and stick their neck out just a little bit more for buyers. Lenders are excited about the policy change giving those buyers just over the 45% threshold a chance in the marketplace. All applicants still need to jump through the multitude of hurdles when it comes to Fannie Mae’s underwriting criteria. The criteria entails down payment, credit history, income, loan-to-value ratio and a mountain of other financial criteria.

The largest population rejected because of high DTI ratios are the Millennials, who often stretch to pay their rent early in their careers. Millennials are the generation born between 1980-2000, which means that the bulk of Millennials are entering the prime home-buying age. They are a new targeted demographic with a lot of marketing being angled toward them in an attempt to attain their buying power: could this expanded ratio correlate with the Millennial?

Millennials are the demographic group helping Baltimore City gain population for the first time in a half century. Harford County is having a more difficult time attracting this market sector: Millennials are looking for mixed use communities, transportation, dining and shopping opportunities. Baltimore County also has tried to cater their communities around this sector of the population.

Regardless of what age or demographic you may lie in, Fannie Mae may not be your only option if your DTI is above 45% or even 50%. As of 2016 FHA (Federal Housing Administration) guidelines maximum debt to income ratio of approximately 55% with compensating factors. FHA does have a major drawback, it requires the borrower to keep paying mortgage insurance premiums for the life of the loan, well after the risk of financial loss to FHA has disappeared.

Having a hefty amount of debt, whether it be from student loans or shopping sprees, may not deter you from being a homeowner with the added help of Fannie Mae increasing the DTI ratio. With the decision of easing the financial standards of the DTI ratio to increase a broader base of buyers I hope it comes with an increased amount of caution for the future of the housing market. As an appraiser for properties in Baltimore County, Baltimore City, Harford County, Howard County, Cecil County, Carroll County and Howard County during the housing crash when the easing of requirements regarding lending money did not bode well I remain watchful on the recent decision for the broadening DTI. The housing market crash, which started in 2007 should be a constant reminder and lesson for the easing of standards and what sort of repercussions it could bring.

Listing Shortage!!!

Already this year we have seen a shortage in the supply of homes on the market. With the beginning of the spring season upon us buyers are waiting with bated breath ready to pounce on the purchase of their new home. Comparing active listings from last March (2016) to this March (2017) in the Baltimore Metro Area housing market (which includes the City of Baltimore, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County) the results are undeniable. The number of active listings declined by 15.8% to 9,453, the 19th consecutive month of declining year-over-year inventory levels and the lowest March levels in a decade.

Although this listing shortage seems to be problematic for buyers, there is an upside for the sellers. The basics of supply and demand states that when the demand for real estate is high, prices rise. When the number of available properties increases, prices usually drop. With anxious buyers waiting in the winds, a beneficial opportunity presents itself for the sellers.

With a shortage of homes in the market the homes typically spend less time on the open market with sellers receiving quick  offers close to the list price and some even higher to ensure the offer is accepted. The average percentage of original list price received at sale in March was 95.1%, the highest March level in a decade, exceeding the previous high set in March 2014 and 2013 of 93.2%. The median days-on-market was 42 days, down from 63 days last year, and at the lowest level in a decade.

Due to listing shortage, the homes that are available on the market are getting scooped up. Sales across the Baltimore Metro area was up 21.7% from last year to $923.8 million. March closed sales of 3,288 were up 16.8% compared to last year and set a record high for the decade.

This data was compiled by the Multiple Listing Service (MLS) data in MarketStats by ShowingTime’s database based on listing activity from MRIS (Metropolitan Regional Information Systems, Inc.).The Baltimore Metro Area housing market includes the City of Baltimore, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County in Maryland.

Low inventory, a strong demand for homes and springtime are a wonderful combination for a seller’s market. This is coupled with the fact the homes are typically on the market for less time than past years and the increase in sales makes this one of the best times to sell…in almost a decade! Listing inventory has not been this low in the peak spring season in quite a long time, if you are a seller or thinking about selling, this may be the best time to put your home on the market.

Interest rates, global events, inflation and tax reform are just a few economic variables that could help or hinder the future of the real estate market. The real estate market is constantly changing but the current storm of circumstances puts the seller in an advantageous position, one that may not last very long.

The New Home Dilemma

Buying new construction has decision making every step of the way…what floor plan to choose, what options, what trends will last and should I wait and upgrade that myself rather than paying the builder such a premium? From an appraisal perspective the viewpoint is a bit different: our job is to prove that the price of the newly constructed home is supported by the neighborhood and area. The largest hurdle in appraising a newly constructed property is when the dwelling is the smallest in the neighborhood with the most amount of upgrades. Typically there is an average amount of options the typical purchaser chooses within the dwelling (upgraded cabinets, flooring, sunroom, luxury master bathroom, etc.) and then there are the buyers that want ever bell, whistle and customization that the model home has and then some. Couple the vast amount (and large price tag) for all of these options and the fact it is within the smallest floor plan available….this is not a good combination. A property like this one runs the risk of being over improved for the neighborhood and has a good probability of having difficulty with the appraisal. The contract price needs to be supported by other homes of similar design and SIZE with the presence of upgrades: keep in mind that not all upgrades will give you a return on your investment. There is a ceiling to the amount of upgrades that the typical buyer will pay, diminishing returns is how we express that there will be a limited return on the additional improvement cost beyond what is typical. As the upgrades go beyond the typical amount the return on the added investment will continue to decline.

 

So, keep in mind, don’t over-customize. Of course, new home buyers want their homes to reflect their personal style and taste. But, it’s important to consider the resale value, as well. While it’s important to make your house satisfy your needs and tastes, just realize not all upgrades will give you a return on your investment.

 

Some features that are good investments are upgrades that will make your kitchen the star of the show. These upgrades include: large center islands with seating and storage, under counter lighting, backsplash, stainless steel appliances and granite countertops (though these have now become standard in many new kitchens).  Another suggestion from an appraisal standpoint is you can never go wrong by adding square footage: it is more effective to pay the builder to make the home larger (bump outs, sun room or great room) while the property is being erected verses being remorseful at a later date wishing you had that extra square footage.

 

Industry experts suggest not putting your upgrade dollars toward these options: specialty driveways, high-end plumbing features and jetted soaking tubs. Cosmetic features in particular, such as paint, landscaping, lighting fixtures, epoxy garage flooring, crown molding, chair rails, window treatments and even certain appliance upgrades can often be made after the closing, particularly by homeowners who have a budget.

 

Remember that the model home you fell in love with may have thousands of dollars of options and that the base home may look very different. With so many upgrades and options available, it’s hard to stay focused on building your dream home. Stay on track to satisfy your needs and tastes but remember a lot of the upgrades can be added to your home after it is purchased. This delayed gratification could be good for your budget and your overall future return on your investment.

Housing Trends in Baltimore

We have all watched the programs on HGTV to see the transformation of an old space revamped, renovated or remodeled into a new modern space that reflects the current housing trends that yield the highest payoff or return. Awe struck by the change that the properties undergo in a seemingly short time span (in TV world) is inspiring and makes us come back for more. Trends vary depending on the location of the home and the demographics of the area: the choices made after determination of demand in the market would allow the potential to maximize the return on investment and/or appraised value. For instance, Baltimore City and Baltimore County buyers share some popular housing trends but there are trends that are specific to the opposing areas. The two following trends will be highlighted to reflect the differences in the trends and demographics.

Housing Trends in Baltimore

The Rooftop Deck

Where most homes downtown have very small to no backyards, the rooftop deck is a great solution for enjoying the outdoors. Outdoor spaces are essential to most buyers regardless of age. Baltimore City does rank fourth in the nation among cities that are attracting young adults. The combination of a growing job market and relatively low prices compared to other major cities is leading many young professionals to purchase their first homes in Baltimore. One of the leading amenities requested in a Baltimore City townhome/rowhome is a rooftop deck. A popular tradition with Baltimoreans is watching the fireworks over the Inner Harbor from a rooftop deck on July 4th. The rooftop deck can offer water views of the harbor and spectacular panoramic views of the city skyline. The Millennials are flooding Baltimore City for opportunity and their young legs are conducive to flights of stairs leading to the roof. On the flip side Baby Boomers, another demographic with huge purchasing power, are shying away from flights of stairs due to bad knees, bad hips ailing joints and overall aging physiques….getting older is not for the faint at heart.

The In-Law Suite

While the Baby Boomer generation is getting older we see more multi generational families living under the same roof. There are more than 50 million American families having multiple generations under one roof and Baltimore County is tapping into this trend. Homes with “in-law suites“, extra kitchens, multiple master suites, a guest house and/or an accessory unit are offering flexibility when it comes to aging family members. With the rising cost of nursing homes, this multi generational living could be beneficial to all parties. If you are planning to build onto your existing home every town (and in most cases,every neighborhood)have different rules when it comes to adding on to a property. Find out what is possible through a meeting with the building inspector or planning department in your town and they will be able to say what is allowed when building onto your property. Another sector of the aging population prefer to preserve their independence and choose a manageable home for future years. A ranch style home where everything is accessible on one floor and allows opportunity for independence for years to come.  For the “active adult” there are also age-restricted communities , generally for people 55 and over where maintenance is generally provided and residents live among their peers. Most are rich with attractions to include pools, golf courses and a spa.

Baltimore City trends are typically geared to a younger buyer while Baltimore County buyers have a wider range of demographics and demands regarding trends. Among the many trends, the two trends noted above were used to reflect the differences in trends and demographics in Baltimore City and Baltimore County. Now, let’s take a look at some other housing trends that buyers are looking for in the current marketplace:

The Open Concept Floor Plan

The main attraction of an open floor plan is the great room, which combines the living and dining rooms into a larger area that is still in view of the kitchen. Whereas traditional floor plans are divided by interior walls, the lack of walls in open designs creates a visually larger space, and more of it can be used at any given time because it is very flexible.

Quartzite

While granite still appeals, quartzite is becoming the new hot contender, thanks to its reputation as a natural stone that’s virtually indestructible. It also more closely resembles the most luxurious classic—marble—without the drawbacks of staining easily. Quartzite is moving ahead of last year’s favorite, quartz, which is also tough but is man made.

Return to Human Scale

During the McMansion craze, kitchens and homes got so big they almost required skates to get around. The trend is to scale back and return to a more human, comfortable size. Buyers now seem to prefer efficiency and location over square footage.

Smart Homes

There is no escaping technology, it looks to be at your doorstep ready to take over! Touch screen appliances, thermostats controlled by your smart phone from any location, automated lighting system, ismart alarms and vehicle detection are just a few of the trends in this exponentially growing industry of tech products made available to the consumer.

 

Drooling over current trends splattered all over mainstream television is eye catching and tempting. Keep in mind your budget, restrictions and future goals before any project. If you are debating an addition or a move to another residence Robinson Appraisal Group can help with your current value or the market value of a possible new residence. We would love the opportunity to assist you.

Maryland Appraising

Maryland Appraising Appraising real estate in Maryland involves properties of all facets. Properties in Maryland range from waterfront, working farms, mountainside retreats, vacant lots, condominiums, townhomes and single family homes to name a few. Each county offers its’ own spectrum … read more

Appraising Real Estate in Baltimore City

Appraising properties in real estate is tricky business for real estate appraisers. The vast value range, emerging markets, government housing and rehabilitation projects are just a few things a Baltimore City appraiser encounters when navigating the proper choice of comparable sales when determining the appraised value of a Baltimore City property. With more Millennials and empty-nesters moving downtown, there’s a renewed interest in the urban living experience causing an increase in appraisal work.

Lending institutions are quite cautious when reviewing a Baltimore City appraisal. Often values differ block to block depending on location of the water, monuments, parks, etc. The distance between the comparable properties and the subject property within an appraisal are highly scrutinized. Part of this scrutiny stemmed from the Baltimore City flipping scandal. With such diversity in value within a small radius due to the density of homes allow a large pool of settled sales to choose from. It is unethical, criminal and against appraisal practices to inflate the values of properties.

HB 521, a bill passed by the state legislature in the wake of the so-called “flipping scandal” of the 1990s, created a database of property appraisals in Baltimore City. Since 2003, every home appraisal done in the city was supposed to be given to the Department of Housing and Community Development, to be kept in files in case investigators ever needed to track down and investigate suspicious appraisers and/or lending practices.

Charm City is a city that bounces back regardless of setbacks. There are more than 40 homebuyer incentives that people could potentially qualify for when buying a home in the Baltimore City. They range from $1,000 to $30,000. These are for primary residents, not investors and you can stack them if you quality for more than one. You can go to http://livebaltimore.com/financial-incentives to learn more.

It is not only traditional buyers that are getting into Baltimore City real estate, even developers are turning a number of historic buildings in downtown Baltimore into amenity filled apartments. 26 S Calvert Street features a rooftop deck and mini basketball court, and 10 Light Street is a building that Metropolitan Partnership is turning into 400 luxury apartments.

With the growing demand of real estate in Baltimore City this leads the appraisal community with a responsibility for quality appraisal reports within lender guidelines that follow uniform standard appraisal practices.

Charm City is becoming more charming each year with expansion, renovation and opportunity. Robinson Appraisal Group can help you with all of your appraisal needs. Our services include estate appraisals, conventional appraisals and FHA appraisals to name only a few. Our office does a multitude of reports for the Baltimore County, Baltimore City, Harford County, Cecil County, Carroll County, Anne Arundel County and Howard County areas. We look forward to helping you in the future with an appraisal for your Baltimore City property. As our Baltimorean counterparts would say, Thanks, Hon!

What is involved in appraisal?

What is involved in appraisal?

Wondering what an appraiser does when it comes to your home appraisal? What do they look for? How do they determine the value of your home?

Bottom line….it all depends on homes that have SETTLED in your area. With so many internet searches available about home sales, the one most important thing to note is the settled price. The predominant amount of websites reflect the price the property is being offered for, not the actual settled price upon closing. Assuming it will go for full list may inflate your assumption of your own home’s worth.

After the appraiser gathers data from your tax record, aerial view of the property and possible prior listing(s) the appraiser will contact you for an appointment. At this time they will retrieve the unknown information regarding updates, rooms, bathrooms, finished basement, exterior amenities/outbuildings and any unusual or special things regarding the property. With this information appropriate comparable properties that have sold in the market area can be chosen on the basis of similarities. Some of the similarities that are most relevant when determining market value value are the location, gross living area (amount of square feet above ground), acreage, age, condition, updating and amenities.

Upon inspection of the property the appraiser will measure the exterior dwelling and any possible additional structures (deck,barn,shed,patio…) deemed necessary for valuation. When inside the appraiser will compile a floor plan, types of flooring, overall condition and quality of construction. The information from the subject property (property being appraised) is compared to the pool of settled sales to determine the closest matches: the most similar properties will then be chosen upon likeness to determine market value.

The major phase of the valuation involves the application of the three approaches to value which include the Sales Comparison Approach, the Cost Approach and Income Approach. The three approaches are reconciled and the value (via most applicable approach)is selected as the final estimate of value.

The most relevant approach to determine the market value of a property in residential real estate is typically the “sales comparison approach”. This approach uses the characteristics of each settled property verses the subject property in a form where the characteristics are broken down line by line to give each item value. For instance, if your home has a fireplace and one of the settled comparables do not a +$3000 amount would be added to the settled comparable price to adjust for the absence of this amenity. The amount of fireplace value varies depending on price range of properties. Other line items include acreage, bathrooms, age, finished areas in basements, location/view,updates, amount of garages, outbuildings, decks, patios, exterior materials, quality of construction and (but not limited too) condition are all items valued in the report to determine the fair market value. There are typically 3 to 4 settled comparables used to determine the market value and possibly 2 more pending or active properties to reflect the current market and support the market value. Pending properties(due to the fact there is an offer) are preferred. Once all the settled sales have been adjusted for their differences (compared to the subject property) the 3 to 4 settled sales provide a range of value in which the appraiser then determines the market value from this range. The pending/active properties in the report then typically provide support for that choice.

It is the appraiser’s responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.

Current guidelines require a report to be in UAD form. To improve the quality and consistency of appraisal data for loans delivered to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, at the direction of
the Federal Housing Finance Agency (FHFA), developed the Uniform Appraisal Dataset(UAD), which defines all fields required for an appraisal submission for specific appraisal forms and standardizes definitions and responses for fields within the report. An appraisal report in UAD causes some confusion to the reader of the report because of areas on the report that are coded for a computer to extract information. If any questions arise feel free to call your appraiser for clarification. Our office does a multitude of reports for the Baltimore County, Baltimore City, Harford County, Cecil County, Carroll County, Anne Arundel County and Howard County areas. Robinson Appraisal Group will be more than willing to answer any questions or provide explanation for any report performed by one of out staff appraisers.

The main responsibility of an appraiser is to provide an unbiased, comprehensive and expert opinion about a specific market value for real property. Regardless of whether you decide to sell, refinance, settle an estate or you are just curious about your home’s current value let us help to inform you on the most important transactions in your life!